RMS Releases New Weather Model for Industry

Risk Management Solutions (RMS), a provider of products and services for the management of natural hazard risks for both insurers and reinsurers, released an advanced daily temperature simulation model that provides weather traders, risk managers, and corporate end-users with a new capability for valuing weather derivatives. This capability is available to RMS clients in Climetrix(TM) version 3.0, the latest release of the company’s weather derivatives trading and risk management system.

The new daily model offers an alternative to the index modeling capabilities also available within the Climetrix system. While index models rely on an aggregate-level analysis of historical index values, the new RMS daily simulation model analyzes weather risk by simulating the day-by-day progression of temperatures over thousands of years of simulated weather. The model uses extensive records of historical daily temperature data for individual weather stations as the baseline for this analysis.

By simulating a time series of temperature data, the new daily model provides superior information for valuing certain types of weather contracts that are difficult to analyze accurately with an index model. These include contracts based on short periods of time such as one week, or those based on event indexes that measure the number of times a specific temperature threshold is reached. The daily model also provides an alternative perspective for the analysis of contracts based on standard degree day or average temperature indexes.

RMS will be hosting seminars in Houston, New York and Frankfurt on Nov. 8, 9, and 13 to introduce the new daily model. The Frankfurt presentation will take place immediately prior to the Weather Risk Management Association’s annual European meeting. For more information, contact RMS at climetrix@rms.com.